TORONTO – Ottawa is proposing to create a new pension plan that would be an alternative to defined-benefit plans, generally favoured by workers, and defined-contribution plans, which are favoured by employers.
The federal government is billing the target-benefit plan, or shared-risk plan, as a “sustainable and flexible” option for Crown corporations and federally-regulated workers.
“This framework will help address the long-term sustainability of pension plans by providing predictable benefits in both favourable and adverse market conditions and interest rate environments, all at an affordable cost for employers and employees over time,” said Kevin Sorenson, minister of state for finance, in notes provided prior to a speech to the Economic Club of Canada in Toronto.
“And the voluntary nature of the proposed framework means that all parties would have a clearly defined role to play in the decision as to whether or not to adopt a target-benefit plan, and have a say in the design elements of the plan.
Ottawa says the voluntary plan is an “innovative approach” that will allow employers and employees to adjust benefits and contributions to their needs in times of surplus or deficit, like the recent financial crisis that put many defined-benefit plans in jeopardy.
The proposed framework would also allow existing companies currently with defined-benefit and defined-contribution plans to convert to target-benefit plans if all parties agree.
Sorenson said this alternative will be able to “offer a more predictable stream of benefit payments and high benefit security, since the target benefits would be based on a pre-determined formula” and retirees would benefit from the “pooling of longevity risk,” something not offered by defined-contribution plans.
Public consultations will be held during the next 60 days.
This is the latest in several reforms recently announced regarding public-service pension plans, including a hike in contributions. Despite the changes, the government has kept benefits, which are fully indexed for inflation, largely untouched.
Ottawa has opposed expanding the Canada Pension Plan by boosting premiums and benefits, an initiative favoured by Ontario and Prince Edward Island, but one that the government says will cost jobs and stunt business development because it would raise premiums for workers and firms.
“We know that an expansion of the Canada Pension Plan, at this time, would hurt families, reduce wages, deter business investment and eliminate jobs,” said Sorenson in the notes.
“We share the views of many provincial governments, employees and employers that believe that now is not the time to hike payroll taxes.”
Ontario Finance Minister Charles Sousa said in a speech Wednesday that his province is still planning to go it alone with a CPP top-off if necessary, accusing Sorenson of misrepresenting the issue with statements that it could cost up to 70,000 jobs.
The Harper government has preferred tax-free savings accounts and pooled registered pension plans, both voluntary savings vehicles created by the Conservatives, rather than mandated CPP improvements.
The CPP, established in 1965, currently provides retirement benefits to contributing workers up to a maximum of about $12,500 annually.
Maximum yearly premiums of about $4,700 are split half-and-half with employers; the self-employed pay the full amount.
There are currently more than 1,200 federally-regulated pension plans in Canada.
With files from Julian Beltrame